Oil train crash spurs alert

Bakken crude may be more flammable than others, feds say

Three days after a train carrying oil crashed and exploded into huge fireballs in North Dakota, federal regulators warned that oil from a booming shale play there may be more flammable than other crude types.

The alert, issued Thursday by the Department of Transportation's Pipeline and Hazardous Materials Safety Administration, is sure to draw more scrutiny of shipping oil by rail, which has skyrocketed in recent years and sent an unprecedented level of old tank cars speeding oil across the country.

The regulators called on companies to make sure such oil is appropriately labeled and to take steps to reduce risks of transporting more volatile types of oil.

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Rail has become the favored way for moving oil from some regions, meaning that energy companies are likely to find ways to keep trainloads of crude on the move.

"I think (the alert) slows it down a little bit," said Foster Mellen, senior strategic oil and gas analyst with for EY Oil & Gas. "Is it going to put a halt or a dramatic slowdown on rail? Probably not."

Rail shipments of crude have soared from 18,000 barrels a day in 2008, before the shale boom began, to 425,000 barrels a day in 2012, according to EY Oil & Gas. And rail shipments of oil and petroleum products jumped 31 percent in 2013, according to the Association of American Railroads.

The Pipeline and Hazardous Materials Safety Administration's alert Thursday warned of the potential danger involved with moving oil from the Bakken Shale play of North Dakota and Montana following three derailments of trains carrying oil from the region in 2013. Roughly two-thirds of all oil moved out of North Dakota is shipped on rail cars, Mellen said.

Rules reinforced

The agency acted following months of investigation that began after a train derailment and explosion in the Canadian town of Lac-Megantic, Quebec, in July that killed 47 people.

"Based upon preliminary inspections conducted after recent rail derailments in North Dakota, Alabama and Lac-Megantic, Quebec involving Bakken crude oil, PHMSA is reinforcing the requirement to properly test, characterize, classify and where appropriate, sufficiently degasify hazardous materials prior to and during transportation," the agency said.

Before the oil is loaded into rail cars, it must be categorized properly to ensure it is handled correctly and appropriate steps are taken to minimize risk.

BNSF Railway, which owns a train that was involved with a derailment and explosion of crude in North Dakota on Monday, said it supported the call for increased attention to labeling crude for transport.

"Proper classification and labeling of any hazardous material is a transportation requirement the rail industry supports to ensure the products are shipped in the appropriate equipment," BNSF spokesman Steven Forsberg said in an email.

More easily flammable

Light, sweet crude oil generally has higher levels of lighter hydrocarbons, which have a tendency to become gaseous and are more easily flammable, said Ramanan Krishnamoorti, a professor of engineering and chief energy officer at the University of Houston. Analysis of oil from the Bakken Shale shows high levels of light hydrocarbons like propane, butane and pentane, which are highly flammable, Krishnamoorti said.

The composition of the crude is similar to other types of light crude oil, he said, including that of the Eagle Ford Shale in Texas. Heavy crude oil, such as that from Canada's oil sands fields, is much less flammable.

Oil and rail companies could reduce the risks involved with moving the oil by putting it through an additional processing step to remove gaseous hydrocarbons before loading it onto rail cars, he said. Rail companies could also add valves to allow more vapor to be released from tanks, lowering their flammability, he said.

The Pipeline and Hazardous Materials Safety Administration did not respond to a question about whether any rail shipments with Bakken oil have been improperly labeled.

Rail cars with thicker walls could also reduce the likelihood that they are punctured in an accident, noted Mellen, of EY Oil & Gas.

Most of the oil shipped by rail has been light sweet crude produced from wells in shale plays without nearby access to pipelines. In the past two years, rail has offered producers from North Dakota to South Texas ways get their oil to more profitable markets on the East and West Coasts.

Brian Velie, an analyst with Capital One Southcoast, predicted that shipping by rail will simply cost producers more money as rail car upgrades are made.

But rail still remains the transportation option of choice for oil companies in the Bakken.

The Bakken's daily pipeline capacity reached 500,000 barrels in 2013 while the region produced more than 1 million barrels per day, making the North Dakota play highly dependent on rail, said Jeff Dietert, an analyst with Houston-based investment bank Simmons & Co.

Pipelines cheaper

Oil producers often are attracted to rail's lower up-front costs, shorter transportation contracts and flexibility to reach several refining markets, even though over the long term pipelines are "comfortably" cheaper than rail shipments, Dietert said.

In late 2012, pipeline operator Oneok Inc. canceled plans for a $1.8 billion pipeline from the Bakken to the Cushing, Okla., oil hub after it was clear that producers preferred railways that arrived at higher-paying markets.

"Rail is about $16 a barrel more economic than piping in the current environment," said Eli Kantor, an analyst at Iberia Capital Partners.

Shares in the two largest oil producers in the Bakken Shale play - Continental Resources and Whiting Petroleum Corp. - fell 4 percent on the New York Stock Exchange following the safety alert.